NASP Event at University of Pennsylvania

So....I made my way through the heavy traffic this morning and went to Philadelphia where I attended an event at the University of Pennsylvania, hosted by National Association of Securities Professionals (NASP).  The event started off with a meet & greet (everyone could have guessed this), after which a panel of industry professionals spoke about their experiences in the securities industry while we ate lunch (fish, beef, and dessert isn't the best idea for lunch during a conference....). 

A few others from Johns Hopkins University were at the event and we had an opportunity to network with industry professionals and students from other top universities.  I had an opportunity to speak with Vanguard and T. Rowe Price about their summer internship programs and am looking forward to see what comes out of it.

- Saliq

Team Meeting 11/5/2011

The Equity Analyst Team Members, together with honored alumni Hussain Jubail and all the candidates attended the Saturday meeting as usual.  Every new candidates talked about the companies they chose for their own reports and their methodologies. Then Professor Saliq spent over an hour walking through every details of his DCF model.  All the members and candidates shoot their opinions from time to time and it was such a intensive Financial Modeling class!

The Art of Winning an Unfair Game

November 3, 2011

After watching the movie “Moneyball” last month, I have decided to read the original book “Moneyball: The Art of Winning an Unfair Game”, in which Michael Lewis tells the story of Oakland A's general manager Billy Beane's attempt to put together a baseball club with a low budget by employing quantitative analysis to draft his players (looking for undervalued players in the market). 

In addition to the mathematical method involved in Beane’s management, another interesting concept is the measure of financial efficiency mentioned in this book: how many marginal dollars does a team spend for each marginal win. Especially for people with an economics background, doesn’t it sound pretty familiar, ha?

Generally speaking, this book gives an example of how an unscientific culture responds, or fails to respond, to the scientific method, just as Michael Lewis wrote in the preface. And I am excited to know more details in this story.

I have started the reading in my kindle, and just finished Chapter One: The Curse of Talent.     

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Lorena Li       

Discussion Topic for 11/04/2011 (Fri)

1. Greece's government appeared to take steps to abandon a much-debated referendum as Prime Minister George Papandreou, fighting to stem an escalating political crisis, told his cabinet that he would drop plans for the vote if new talks with a leading opposition party secured support to push through harsh fiscal cuts required for further financial aid. (from WSJ)

http://online.wsj.com/article/SB10001424052970203804204577015130025553196.html?mod=WSJ_hp_LEFTTopStories

Greek Prime Minister George Papandreou defied demands on Thursday that he resign over his decision to hold a referendum on the nation's euro zone bailout deal, calling instead for his party to unite for a confidence vote in the government. (from Reuters)

http://www.reuters.com/article/2011/11/03/us-greece-referendum-idUSTRE79U5PQ20111103

Question 1:

When will the announced referendum take place?

Based on the latest two days’ news, do you think the referendum plan could be dropped?

2. Jefferies, responding to its plunging shares and growing fear over its stability, said it had no meaningful net exposure to European sovereign debt and that it was, in fact, positioned to profit should credit quality there deteriorate further. (from Reuters)

http://www.reuters.com/article/2011/11/03/us-jefferies-idUSTRE7A24Z920111103

Question 2:

What is the net exposure to European sovereign debt of Jefferies?

Do you think Jefferies will be the next MF Global?

3. MF Global Holdings Ltd. collapsed into bankruptcy Monday when a potential buyer bolted over a discrepancy of hundreds of millions of dollars in the beleaguered securities firm's books, people familiar with the matter said. (from WSJ)

Question 3:

What’s the reason drove MF Global to go bankruptcy? Comments? Opinions?

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Lorena Li

Euro Crisis Fells First US Victim: MF Global

November 2, 2011

MF Global filed for bankruptcy this Monday (Nov. 31, 2011), primarily because of losses caused by its bets in EU debts. It is the biggest failure by a securities firm since Lehman Brothers Holdings Inc. filed for Chapter 11 in September 2008.

Relevant investigation is still going on, and some details about the European debt trade that destroyed MF Global are exposed gradually. Ms. Izabella Kaminska, a financial journalist, has done a very good job at describing how this trade works in her article MF Global and the repo-to-maturity trade. And she called MF Global’s “repo-to-maturity” laddered trades as an “overnight repo Black Swan” event.

Often in a traditional repo-to-maturity, when the bonds matured, the purchaser of the repo bonds would receive the final payment directly from the issuer of bonds. He would then net out the amount of the original repo loan plus interest, and hand the rest of the payment over to MF Global. Because the loans matured in 2012 and the European Financial Stability Facility was backing them through that date, there really wasn’t much issuer risk involved. The only real risk was contained in the contractual obligation on the part of MF Global to provide additional collateral if the market value of the sovereign bonds dropped by more than the original haircut prior to maturity. What happened here is that MF Global’s regulators worried the firm didn’t have enough capital to meet likely margin calls and demanded it raise more capital and disclose more about the size of its positions. These disclosures worried the ratings agencies, which downgraded the company. Which made the creditors demand more collateral. Senior Editor Mr. John Carney from CNBC also gave a detailed analysis with this process.

MF Global filed for Chapter 11 protection in the Southern District of New York, leaving behind more than $2.2 billion in debt, held mostly by JPMorgan Chase, with more than $1.2 billion in bonds, and Deutsche Bank with about $1 billion. This breaking news may give the Street a hint that it would better be more cautious when making decision involved with global investments, since global opportunities also mean global risks that could be more unpredictable and harder to manage.

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Lorena Li

7 New Candidates

Yesterday was a very busy meeting for our team.  From presenting the analysis work which the current members were working on to learning about the 7 new candidates who will be put through a 2 week intensive path, we had a lot to talk about and are excited about what lies ahead.  We also had a surprise visit from Nathan Foley-Mendelssohn, an Equity Analyst for a Boston based asset manager.

Over the next week we will be working on improving our DCF models and I will be teaching a brief course on DCF modeling this coming Saturday.  The new candidates will share with us the 3 firms which they will begin to cover, why they choose that firm, and something unique about the company.  The current members will discuss the firms which they are following and how they believe their models have changed due to new things which are happening within that firm or industry.

- Saliq Khan

Discussion Topic for 10/31/2011 (Mon)

1.       Sluggish income growth led U.S. households to cut back on saving in September to raise their spending, showing the economy's recovery remains fragile. (from Reuters)
http://www.reuters.com/article/2011/10/28/us-usa-economy-idUSTRE79O4A620111028

Question 1:
Any comments, opinions? How would you predict the 4^th quarter personal income growth rate?

2.       Emerging market debt was one of the last shoes to drop when Europe’s simmering sovereign debt crisis once again turned into a full-blown panic this summer, but when it finally did, it landed with a thud. (from Financial Times)
http://blogs.ft.com/beyond-brics/2011/10/19/em-bonds-after-the-freeze/#axzz1cIZreI88

The head of Europe's rescue fund sought to entice China on Saturday to invest in the facility by saying investors may be protected against a fifth of initial losses and that bonds could eventually be sold in yuan if Beijing desires. (from Reuters)
http://www.reuters.com/article/2011/10/30/us-eurozone-idUSTRE79R1LG20111030

Question 2:
Do you think the EU Debt Crisis is an opportunity for emerging countries to go global?
Question 3:

Assume Beijing buy the yuan dominated EU bond, do you think it’s a sign that the Chinese yuan is becoming an international currency?


3.       MetLife Inc. (MET), the insurer whose plan for a dividend increase was rejected by the Federal Reserve, said third-quarter profit surged more than 10-fold on gains in the company’s derivative bets. (from Bloomberg)
http://www.bloomberg.com/news/2011-10-27/metlife-third-quarter-profit-surges-to-3-58-billion-on-derivative-gains.html

Question 4:
Give an introduction about the MetLife and the insurance industry.
Question 5:

As some big companies are reducing their package for employee insurance, how do you see the future individual insurance service?

4.       Meg Whitman wants Hewlett-Packard Co. to sell personal computers after all, a dramatic about-face by the H-P chief executive only five weeks into the latest chapter of her sweeping career. (from WSJ)

http://online.wsj.com/article/SB10001424052970203687504577002144041676680.html?mod=WSJ_hp_LEFTTopStories

Question 6:
Compare the PC business of H-P with Dell’s.
Question 7:

Do you think the tablet is a substitution of the laptop?

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Lorena Li